This paper looks at the pricing strategy adopted by the Madigan Army Medical Center for its general medical and surgical care services. It also analyzes how the costs would be considered in formulation of the pricing strategy.
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Founded in 1944, Madigan Army Medical Center (Madigan) located on Joint Base Lewis-McChord in Tacoma, Washington, is one of the largest military hospitals on the West coast of the USA. The military healthcare provider is a member of the TRICARE and Medicare programs, receiving funding from the Department of Defense (DoD) (Department of Defense, 2013). It also offers walk-in appointments. Madigan focuses on offering healthcare to members (and their families) of the military, Coast Guard and commissioned corps. These include members in active duty, reserves as well as retirees and their respective families. It also offers healthcare services to the general public.
The 227-bed hospital that is accredited by the Joint Commission offers many healthcare services that include general medical and surgical care, primary care and specialty clinics, emergency and clinical services, wellness and prevention services, veterinary care, and environmental health services. It also has comprehensive medical teaching services that cater for undergraduate and graduate military officers (Joint Base Lewis-McChord, 2017).
The hospital has adopted value based healthcare and consequently value-based pricing; not unlike all healthcare providers in the TRICARE program.
Like all members of the TRICARE program, Madigan prices its various services according to the specific TRICARE health plans. Currently, there are eleven health plans with all of them meeting the requirements for minimum essential coverage and basic health care coverage as stipulated by the Affordable Care Act. The health plans are dependent on the duty status and location of the sponsor and this is reflected in certain limitations to services as well as the costs for the sponsors and their families (Department of Defense, 2013).
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So for general medical and surgical care that is one of the services offered at Madigan, patients at Madigan under the TRICARE Standard plan will receive the minimum essential coverage, with their military identity card being proof of membership. As is standard practice, there will be cost sharing for the TRICARE Standard coverage, with Madigan having deductible and cost shares of 20% or 25%. The beneficiary is also responsible for out-of-pocket expenses. The provision of healthcare is based on space availability, just like in other military treatment facilities.
There is staff at the hospital responsible for administering TRICARE and Medicare. This include in debt collection who assist in obtaining determination and claims processing as well as beneficiary counseling who provide program insights and assist in claims resolution.
TRICARE pricing strategy
In terms of payment and pricing, Madigan has by default adopted the TRICARE Management Activity that has succeeded in terms of Healthcare Effectiveness Data and Information Set (HEDIS) measures (Business Executives for National Security, 2014). This preventative activity ensures there are high rates of indicated interventions among patients, financial arrangements at military hospitals do not vary much and that the quality of healthcare delivered is not affected.
Madigan also benefits in its pricing strategy due to the fact that the negotiating and purchasing power of the military healthcare system is immense. Hence it is able to benefit from highly discounted and subsidized supplies (Institute of Medicine, 2013). That the hospital has adopted TRICARE means its services and facilities are not subject to abuse, unlike for hospitals that have service-driven reimbursement.
Evidence-based practice that aims at value-based healthcare minimizes the overall costs of healthcare and enhances other key performance indicators. This should be accompanied by programs that detect and intervene in cases of bad healthcare, fraud and abuse. The evidence-based practice and the programs reduce variations in healthcare provision and aim at enhancing quality rather than quantity of healthcare. TRICARE promotes incentives for provision of clinically appropriate services while eliminating payment for unnecessary procedures (Congressional Budget Office, 2013). It ensures that Madigan operates within the accepted norms. Through adoption of prepayment and regular audits akin Medicaid, TRICARE can further reduce healthcare costs by ensuring healthcare providers and patients avoid unnecessary medical procedures and treatments, claims and fraud (White, et al., 2014). Through such adoption, Madigan, and the military healthcare service, would reduce costs and offer even more affordable healthcare.
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